A CIO Blog with a twist; majority of my peer CIOs talk about the challenges they face with vendors, internal customers, Business folks and when things get through the airwaves, the typical response is "Oh I See". Some of you may disagree with my meanderings and that's okay. It's largely experiential and sometimes a lot of questions

Updated every Monday. Views are personal

Monday, April 03, 2017

The fine balance between managing growth and profitability and differences between enterprise and startups

Established enterprises are mostly like sloths who move at
their own pace when reacting to any kind of market or environmental changes
(there are exceptions to every rule and there are some to this one too). Many
get there eventually due to the resilience in the business and the sheer size
that keeps the momentum going in their favor. Some suffer short-term impact and
brush it aside as a learning; in rare cases if the company loses direction or
has a significant impact, they become prey to the opportunist predator or break
into pieces.

We grew 15% last year,
the market grew 12%, so we are doing good; this year the forecast for the
industry is 13%, let’s target 16% growth. Our profitability is good and in line
with industry numbers, we benchmark favorably. Enterprises are
predominantly organized in silos, each chasing respective targets on
profitability and growth which are derived from past performance. Rarely a
division or Business Unit thinks of breakthrough performance; the
entrepreneurial spirit is rarely seen amongst enterprise managers.

Checks and Balances matter a lot to the Board, Management
and Leadership of enterprises; they live and swear by ratios and manage balance
sheets. Targets are set, budgets managed, numbers scrutinized, long weekly and
monthly reviews held to make sure that everything is working as expected, no
surprises. Staid growth married to acceptable profitability ensures that
numbers match quarter on quarter. Aberrations if any require painful
explanations and root cause analysis only to be repeated ever so often.

Despite the world having seen many black swan events in the
last decade or so, enterprises continue to live in their world consciously
immune to potential threats. So when disruption occurs from unknown sources not
factored into annual operating plans and strategic business plans Management teams
scurry into offsite meetings to evaluate, synthesize the information, and
arrive at counterstrategies. Alternately a big name consultant is hired to
review the impact of disruptive forces and advise the management on recourse.

On the other hand startups enjoy the advantage of no
historical data and thus they dream audacious and hairy goals; they want to
change the world with their version of solution, product or business model; create
new markets, beat big incumbents, or at least launch a flange attack to gnaw at
market share. Most of them are driven by young entrepreneurs wanting to emulate
peer success; their prime focus remains growth, at times driven by easy money
at their disposal or their extreme risk appetite and nothing to lose attitude.

Technology driven startups have low entry barriers that allows
for me-too ventures with irrational euphoria. Flash in the pan success
emboldens the space until it gets crowded with spectacular failures, at times
taking an entire ecosystem or micro-segment of the industry with them. Despite
large amounts of fold ups, they continue to mushroom with reduced cycles to
merger or demise. Some of these have been in hyperlocal services, aggregation
of services, hyperlocal logistics, home ordering, and many more.

The moot question is why are enterprises unable to launch
such blitzkrieg and capture the mind and imagination of their customers ? Why
are they so obsessed with numbers and ratios ? Exceptions aside, majority of
startups are long way off from making money while they continue to invest in
market expansion; exceptions aside, majority of enterprises have not been able
to replicate the success of the technology driven pure play companies; they
continue to be at different ends of the spectrum in their results.

Experiments with Design Thinking and Inside Out innovation
models have not been able to live up to expectations in the enterprise. Lateral
shifts, hiring fancy titled self-proclaimed experts like Chief Digital Officers
and the like have boomeranged. Politics and power struggles have seen the
demise of many good initiatives with CXOs squabbling about credit and pushing
the blame. The exceptions have grown with focused attention and faith in their
business models as well as the teams who shepherded the successes.

Reality is that conventional wisdom and progress over the
years brings in a certain way of working to enterprises that defines them; they
find it difficult to give up their winning formula and move on to a new
paradigm. Reality is also that startups with no baggage find it easy to let go
and learn from their failures; at times they are also naïve in their thinking
and repeat mistakes. A crossover between the startup and the enterprise culture
would probably be a recipe for success or disaster of major proportions.